The Market Signal: Netflix Retreats from Membership Metrics as "Drama Slop" Apps Surge
$40M per month: How ReelShort exposes Netflix's value problem
The Medium identifies essential signals on how technology is shaping the business of culture, and how the marketplace is evolving in response.
The Market Signal
Last Thursday, Netflix finally revealed their financial story for investors without paid memberships and average revenue per member (ARM). Its quarterly Excel sheet of its financials now only shares Revenue Information by Region, whereas before it showed members added, revenue per member and currency impact across four global regions.
Netflix will continue to announce paid memberships as they “cross key milestones”. Starting next fiscal quarter (Q2’25), Netflix will publish its bi-annual engagement report—”which accounts for 99% of all viewing on Netflix”—with its Q2 and Q4 earnings results.
Management explained it is “focused on revenue and operating margin as our primary financial metrics — and engagement (i.e. time spent) as our best proxy for customer satisfaction.” In its “early days it had “little revenue or profit”, membership growth was “a strong indicator of its future potential.”
Why It Matters
Last April, I argued that this move offered a simple answer to two difficult questions that I highlighted in May 2023’s “The ARPU of Storytelling”:
How does a media business redefine ARPU in the streaming era?
How will they sell this redefinition to investors?
Netflix argues ARPU is a too narrow story for a growing membership business, which now includes gaming and Experiences businesses. Its competitors Amazon Prime, Epic Games (Fortnite) and YouTube share this perspective, as none share their ARPU with investors.
Now Netflix faces competition from newer entrants like ReelShort and short-from content produced on emerging generative artificial intelligence (AI) platforms like OpenAI’s Sora and Google’s Veo2.
ReelShort’s model seems particularly disruptive: It creates TV series divided into 50-100 tiny chapters that are each two-minutes long. Users may unlock new episodes by watching ads, paying per clip (“microtransactions”) or signing up for unlimited viewing.
By comparison, Netflix’s emerging engagement story seems opaque, complicated and outdated.
🎙️ Voices In ChAInge
For my seventh interview in the Voices In ChAInge interview series, I spoke with Ian Schafer, President and Co-Founder of Ensemble, a Hoorae Media company. Ensemble is a next-generation branded entertainment studio, co-founded and curated by acclaimed producer, writer, actress, and entrepreneur Issa Rae. Ensemble collaborates with brands, platforms, and publishers to produce and distribute epic content and activations that shape culture, engage audiences, and move product.
Voices in ChAInge is a series of 12 short interviews (1.5 to 5 minutes long) that offer a wide variety of answers to this simple question: “What is a recent market signal or development in AI that forced you to rethink a key business assumption?”
[Author’s Note: I will be releasing the last four episodes this week, and I believe they have some of the best answers of the series.]
Listen on Substack, Apple Podcasts, Spotify or copy this RSS Feed into your preferred podcast platform.